UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

For the quarterly period ended June 30, 2016

or

For the transition period from              to             

Commission File Number: 000-29089

 

Agenus Inc.

(exact name of registrant as specified in its charter)

 

 

3 Forbes Road, Lexington, Massachusetts 02421

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(781) 674-4400

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Number of shares outstanding of the issuer’s Common Stock as of July 29, 2016: 86,999,302 shares

 

 

 

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Agenus Inc.

Six Months Ended June 30, 2016

Table of Contents

 

 

 

 

 

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PART I - FINANCIAL INFORMATION

AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

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AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

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AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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AGENUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

 

Note A - Business, Liquidity and Basis of Presentation

Agenus Inc. (including its subsidiaries, collectively referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is an immuno-oncology company focused on the discovery and development of revolutionary new treatments that engage the body’s immune system to benefit patients suffering from cancer. We are developing a comprehensive immuno-oncology portfolio driven by the following platforms and programs, which we intend to utilize individually and in combination:

We have a portfolio of programs in various stages of development, including a series of antibodies in discovery and pre-clinical and clinical development, our Prophage vaccine, a Heat Shock Protein (“HSP”)-based autologous vaccine candidate for a form of brain cancer that has successfully completed Phase 2 trials, and a number of advanced QS-21 Stimulon-containing vaccine candidates in late stage development by our licensee, GlaxoSmithKline (“GSK”).

Our core antibody technologies include our antibody discovery platforms that are designed to effectively discover and produce quality human antibodies against antigens of interest. We and our partners currently have programs targeting GITR, OX40, CTLA-4, LAG-3, TIM-3, PD-1, CEACAM1 and other undisclosed targets.

Our business activities include product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace. Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing arrangements with academic and corporate collaborators and licensees and by entering into new collaborations.

We have incurred significant losses since our inception. As of June 30, 2016, we had an accumulated deficit of $838.4 million. Since our inception, we have financed our operations primarily through the sale of equity and convertible and other notes, and interest income earned on cash, cash equivalents, and short-term investment balances. We believe that, based on our current plans and activities, our cash, cash equivalents and short-term investments balance of $123.3 million as of June 30, 2016 will be sufficient to satisfy our liquidity requirements through the first half of 2017.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual consolidated financial statements. In the opinion of our management, the condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of our financial position and operating results. All significant intercompany transactions and accounts have been eliminated in consolidation. Operating results for the six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2016.

Effective June 14, 2016, our certificate of incorporation was amended to increase the number of authorized shares of common stock from 140,000,000 to 240,000,000.

For our foreign subsidiaries the local currency is the functional currency. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates during the period. The cumulative translation adjustment resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total stockholders’ equity.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its

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estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

 

 

Note B - Net Loss Per Share

 

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our Directors’ Deferred Compensation Plan, or “DDCP”). Diluted income per common share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our DDCP) plus the dilutive effect of outstanding instruments such as warrants, stock options, nonvested shares, convertible preferred stock, and convertible notes. Because we reported a net loss attributable to common stockholders for all periods presented, diluted loss per common share is the same as basic loss per common share, as the effect of utilizing the fully diluted share count would have reduced the net loss per common share. Therefore, the following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of June 30, 2016 and 2015, as they would be anti-dilutive:

 

 

Note C - Investments

Cash equivalents and short-term investments consisted of the following as of June 30, 2016 and December 31, 2015 (in thousands):

 

 

For the six months ended June 30, 2016, we received proceeds of approximately $40.0 million from the maturity of U.S. Treasury Bills classified as cash equivalents and $35.0 million from securities held-to-maturity. As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses for the three and six months ended June 30, 2016 and 2015.

Of the investments listed above, $67.4 million and $126.4 million have been classified as cash equivalents and $49.9 million and $35.0 million as short-term investments on our condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively.

 

 

Note D - Goodwill and Acquired Intangible Assets

The following table sets forth the changes in the carrying amount of goodwill for the six months ended June 30, 2016 (in thousands):

 

 

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Acquired intangible assets consisted of the following as of June 30, 2016 and December 31, 2015 (in thousands):

 

 

 

The weighted average amortization period of our finite-lived intangible assets is 9 years. Amortization expense related to acquired intangibles is estimated at $1.3 million for the remainder of 2016, $2.2 million for the year ending 2017, $2.1 million for the year ending 2018 and $1.9 million for each of the years ending 2019 and 2020.

The acquired in-process research and development (“IPR&D”) asset relates to the pre-clinical CPM antibody programs acquired with our acquisition of 4-Antibody AG in February 2014. IPR&D acquired in a business combination is capitalized at fair value and is subject to impairment testing at least annually until the underlying project is completed. Once the project is completed, the carrying value of IPR&D is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.

 

 

Note E - Debt

Debt obligations consisted of the following as of June 30, 2016 and December 31, 2015 (in thousands):  

 

 

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In June 2016, we executed a capital lease agreement that expires in June 2020 for equipment with a carrying value of approximately $1.0 million, which is included in property, plant and equipment, net on our condensed consolidated balance sheets as of June 30, 2016. Under the terms of the capital lease agreement, we will remit payments to the lessor of $144,000 for the remainder of 2016, $288,000 for each of the years 2017 through 2019 and $144,000 for the year ending 2020.  As of June 30, 2016, our remaining obligations under the capital lease agreement are approximately $1.0 million, of which $300,000 and $700,000 are classified as other current and other long-term liabilities, respectively, on our condensed consolidated balance sheets.

 

Note F - Accrued and Other Current Liabilities

Accrued liabilities consisted of the following as of June 30, 2016 and December 31, 2015 (in thousands):

 

 

Other current liabilities consisted of the following as of June 30, 2016 and December 31, 2015 (in thousands):

 

 

Note G - Fair Value Measurements

We measure our cash equivalents and short-term investments and contingent purchase price considerations at fair value.  Our cash equivalents and short-term investments are comprised solely of U.S. Treasury Bills that are valued using quoted market prices with no valuation adjustments applied.  Accordingly, these securities are categorized as Level 1 assets.

The fair value of our contingent purchase price consideration, $6.0 million, is based on significant inputs not observable in the market, which require it to be reported as Level 3 liabilities within the fair value hierarchy. The valuation of these liabilities use assumptions we believe would be made by a market participant and are based on estimates from a Monte Carlo simulation of our market capitalization and share price, and other factors impacting the probability of triggering the milestone payments. Market capitalization and share price were evolved using a geometric brownian motion, calculated daily for the life of the contingent purchase price considerations.

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Assets and liabilities measured at fair value are summarized below (in thousands):

 

 

The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of June 30, 2016 (in thousands):

 

The estimated fair values of all of our financial instruments, excluding our outstanding debt, approximate their carrying amounts in our condensed consolidated balance sheets.

The fair value of our outstanding debt balance at June 30, 2016 and December 31, 2015 was $123.3 million and $115.9 million, respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology that was derived by evaluating the nature and terms of each note and considering the prevailing economic and market conditions at the balance sheet date. The principal amount of our outstanding debt balance at June 30, 2016 and December 31, 2015 was $125.7 million, inclusive of $11.6 million of accrued interest, and $118.5 million, inclusive of $4.3 million of accrued interest, respectively.

 

 

Note H - Share-based Compensation Plans

We primarily use the Black-Scholes option pricing model to value stock options granted to employees and non-employees, including stock options granted to members of our Board of Directors. All stock options have 10-year terms and generally vest ratably over a 3 or 4-year period. A non-cash charge to operations for the stock options granted to non-employees that have vesting or other performance criteria is affected each reporting period, until the non-employee options vest, by changes in the fair value of our common stock.

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A summary of option activity for the six months ended June 30, 2016 is presented below:

 

 

The weighted average grant-date fair values of stock options granted during the six months ended June 30, 2016 and 2015 were $1.89 and $3.59, respectively.

As of June 30, 2016, $11.5 million of total unrecognized compensation cost related to stock options granted to employees and directors is expected to be recognized over a weighted average period of 2.5 years.  

As of June 30, 2016, unrecognized expense for options granted to outside advisors for which performance (vesting) has not yet been completed but the exercise price of the option is known is $404,000. Such amount is subject to change each reporting period based upon changes in the fair value of our common stock, expected volatility, and the risk-free interest rate, until the outside advisor completes his or her performance under the option agreement.

Certain employees and consultants have been granted nonvested stock. The fair value of nonvested stock is calculated based on the closing sale price of our common stock on the date of issuance.

A summary of nonvested stock activity for the six months ended June 30, 2016 is presented below: